DETERMINANTS OF DIVIDEND POLICY OF INSURANCE COMPANIES: EMPIRICAL EVIDENCE FROM ETHIOPIAN INSURANCE COMPANIES

Abstract

Dividend decision policy is one of the most important financial policies to companies as it affects shareholders, consumers, workers, regulators, governments, growth rate of the firm, its credit standing, share prices and ultimately the overall value of the firm. The main objective of this study was examines the factors that determine dividend policy of insurance companies in Ethiopia. In this study dividend payout used as dependent variables where as the independent variables include both micro and macro. In order to achieve this objective the study used explanatory research design. Balanced panel data covering 10 years period (2008-2017) for ten insurance companies of audited financial statement from NEB and annual reports from each insurance company were collected. The data were analyzed by using descriptive statics, correlation analysis and regression analysis. The classical linear regression model assumptions were employed. The random effect regression model used to estimates the coefficients of variables and the result of the study indicates that profitability, growth, age, inflation and interest rate has a positive relationship with dividend payout where as leverage, liquidity, previous year dividend, and exchange rate has a negative relationship with dividend payout. In this study growth, age, size and previous year dividend are the most important or significant factors affecting dividend payout in Ethiopian insurance companies during the study period. Therefore, Ethiopian insurance companies Board of director and managers should give attention to growth, age of firms, size of firms and previous year dividend when they set dividend policy and at the same time investors need to consider these variables in their investment decisions when they want to make an investment in Ethiopian insurance company.